Fitch Affirms Syracuse IDA (NY) School Facility Revs at 'A'; Outlook Revised to Stable.
The 'A' rating reflects the nature of the pledged revenue stream, satisfactory debt service coverage on all related obligations, and general credit characteristics of the State of New York. The rating further reflects the appropriation risk associated with the city and school district although Fitch believes this risk is minimal as state intercept of revenues is triggered upon non-appropriation. The revision of the Rating Outlook to Stable from Positive reflects the macroeconomic issues the State of New York is experiencing.
The bonds are payable from the trustee-held, pro rata set-aside of state aid remitted to Syracuse City School District (SCSD) during the period from Dec. 1 to March 31 in each fiscal year. Upon appropriation by Syracuse (the city) and SCSD, the set-aside funds are deposited into the bond fund, and only then are pledged to the payment of debt service. State aid remitted during the fiscal 2008 December to March collection period provided over 40 times (x) coverage of maximum annual debt service (MADS) on the series 2008A bonds. In the event adequate funds to pay debt service are not available by April 1 for any reason including an event of non-appropriation, the state aid intercept mechanism is triggered, intercepting any remaining state aid payable to SCSD during such fiscal year. As the debt service payment date is May 1, state aid intercepted in the month of April is not expected to be sufficient to pay debt service. Bondholders benefit from a debt service reserve fund satisfied with a surety by FSA. Fitch believes that an event of non-appropriation is highly unlikely as there is no incentive not to appropriate. If set-aside state aid during the December to March collection period is not appropriated, subsequent state aid is still intercepted until the debt service reserve is completely replenished.
State aid appropriated to SCSD may be intercepted as pledged payment for several other obligations including outstanding SCSD general obligation indebtedness totaling $160.1 million as of fiscal 2008 year-end, charter school payments totaling $9.9 million in fiscal 2009, and revenue anticipation notes totaling $65 million in fiscal 2009. Fiscal 2008 state aid provided 2.7x coverage of aggregate MADS on all obligations that are subject to the intercept mechanism.
The $49.2 million series 2008A bonds were the first installment of $225 million in bonds authorized under this financing structure. Currently, state building aid pays roughly 97% of the allowable construction costs on the 2008 debt offering. SCSD anticipates issuing additional debt under this financing vehicle in the first quarter of 2011.
State aid intercept ratings, such as this one, are correlated to state bond ratings and may rise or fall with a change in the state's bond rating, among other circumstances. New York's 'AA-' GO rating is based on the state's substantial wealth and resources and broad economy and also recognizes concerns, now heightened, regarding the outsized role that the financial services industry plays in the state's economy and revenue system. State net tax-supported debt levels have been relatively stable as a percentage of personal income and are expected to remain above average but still in the moderate range.
About 20% of New York State tax revenue comes from the financial services sector and, as would be expected, the current downturn has been particularly troublesome for New York. The state took proactive positive steps to identify and address projected budget gaps over the course of fiscal 2009 as revenue forecasts were reduced steeply and out-year gap estimates rose sharply. The enacted budget for fiscal 2010, which began on April 1, 2009, resulted in minimal growth in state operating funds spending but incorporated a substantial amount of federal stimulus aid.
New York's economy, whose decline has lagged that of the U.S. in the current recession, is still performing considerably better than the nation. Non-farm employment was down 2.4% in June 2009, year-over-year, compared to a 4.2% drop for the U.S., and state unemployment for the month was 8.7%, 92% of the U.S. level. The state forecasts non-farm employment down 2.3% in 2009 and 0.3% in 2010. The financial activities sector accounts for about 8% of jobs and more than 20% of earnings in the state, compared with 6% and 10% for the nation. This has made New York vulnerable to economic cyclicality, particularly given the prominence of personal income tax receipts in the state's revenue structure. The state's personal income per capita is the fourth highest among the states, at 121% of the U.S. average. State personal income growth has been above that of the nation since 2004. The state forecasts a personal income drop of 2.7% in 2009.
The enacted budget for fiscal 2010 closed gaps estimated at $2.2 billion for fiscal 2009 and $17.9 billion for fiscal 2010, with these estimates including program expansions in current law that would have resulted in spending growth of a high 12.8%. The combined gap was closed through spending control, particularly in health care and education ($6.5 billion in total, including $1.7 billion from the elimination of a middle class property tax relief rebate check program); a temporary personal income tax rate increase that raises the top rate to 8.97% from 6.85% for tax years 2009 through 2011 that is estimated to generate $3.9 billion, as well as other revenue actions ($5.4 billion in total); $6.1 billion in federal stimulus monies; and $2 billion in other one-time resources. No deficit financing was employed.
New York's net tax-supported debt is above average but still in the moderate range at 5.2% of personal income. Most of New York's debt has been issued by state public authorities and secured by appropriations; only about 7% is GO. While this results in a diffuse debt structure, there is strong centralization and oversight in the budget division and approval by the public authorities control board is required for many of these bond issues.
Additional information is available at www.fitchratings.com.
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|Date:||Nov 5, 2009|
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